Google next-generation CFO and you’ll find 50-odd articles, whitepapers, and blogs on the evolving role of the chief financial officer. But, there’s a nuance the headlines miss: it’s not just the next-generation’s role that is evolving, it’s the now-generation’s role, as well.
The now-gen CFO can’t be just a finance executive. This is particularly true in a private equity-backed environment, where the days of a controller-style finance department are long gone. To be a real strategic partner to the business, now-gen CFOs must embrace the data science side of the FP&A house.
That may be a tall order for executives who grew up when accounting with a capital A ruled the CFO landscape. But, in a world obsessed with life “hacks,” there’s one available to CFOs needing an analytical boost. This one starts with a capital B: BI, or business intelligence.
BI is the class of technology that helps businesses organize, analyze, and contextualize the information they collect. In finance terms, BI takes financial and operational data to produce integrated dashboards, key performance indicators and, most critically, business insights. As such, BI can be the now-gen CFO’s best friend – enabling the finance function to provide the business with automated data analytics for historical, current, and predictive views of operations.
But perhaps its benefits can be better articulated by examining how BI can help CFOs alleviate pain points across their “Big Three” buckets of work.
If a proactive business advisory role is the ideal for the finance function, the order to cash, procure to pay, and record to report cycles are its reality.
This collection and consolidation of financial and operational data across business units — and its subsequent conversion into various reports — is, to put it bluntly, a grind. It’s a laborious process that consumes and absorbs so many resources that it leaves very little room to collaborate with the business based on those results.
Nor does the process allow advanced analytics to inform that collaboration. Many CFOs are stuck in an Excel-centric world, where reports are manual, information is siloed, and data is stored, not studied. (The last is true even for those companies that have graduated to ERP systems which automate financial reporting, but not operational data, much less drill-downs.)
BI can provide CFOs with the ability to corral data from multiple siloed sources and make it manageable and cohesive. It can automate reporting streams. And it can serve real value as an Excel/ERP supplemental tool, adding a big data dimension to address analytical limitations.
In real-world CFO speak, BI can automate financial statement preparation and distribution, enable operational reporting of core business drivers, identify outliers for use in the review and reconciliation of monthly results, provide working capital analysis and monitoring (especially for companies with multiple entities), calculate revenue recognition for streams requiring complex estimation, calculate multi-layered compensation packages, provide predictive analysis and benchmarking, assist with driver-based budgeting and forecasting processes — and the list goes on.
For the private-equity backed CFO (or for CFOs of companies that serially acquire or divest assets), BI can help navigate transactions or, sometimes, uncover reasons to pause them.
Starting in the planning or pre-close phase, BI tools can provide granular analysis of synergy and stranded costs using transaction data sets. Given that most transactions fail to produce the target return on investment, this level of granularity can help shine a light on whether synergies exist; whether the target will make for a good fit within the existing sales and operational footprint; or, in a divestiture, whether the assumed benefits of the sale are accurate. Not only does BI provide that level of granularity, but it does so with expediency, a critical detail given the urgency of transaction timelines.
BI helps with more than just transaction targeting and assessment. It can be an invaluable tool for merger integration and divestiture management. BI also helps both diagnose the drivers of synergy and divestiture benefits and track them in real-time.
The BI bottom line, here, is its benefit to value creation — providing the business with the necessary monitoring and analysis capabilities to inform post-transaction company growth and efficiency.
BI is useful for multiple optimization scenarios, a couple of which are covered above: optimizing reporting to convert the CFO from accountant to adviser, and optimizing business diagnostics for transaction execution. In those instances, BI can be a real value-add and bottom line booster.
When a company is not meeting expectations, however, BI can be a lifeboat. It can rescue CFOs from the large, incoherent data populations and disparate systems that make diagnosing the causes of underperformance difficult, if not impossible.
“[BI] can rescue CFOs from the large, incoherent data populations and disparate systems that make diagnosing the causes of underperformance difficult, if not impossible.”
Unlike the regular rhythm of finance function reporting, which measures company performance at designated intervals, BI tools are made to be responsive and measure in real-time. The targeted reports they enable on product X, service division Y, or total company cash flow are invaluable in getting to the root cause of financial abnormalities. They can also inform turnaround strategies.
Of course, it’s not just 13-week liquidity forecasting that can provide performance improvement insight. BI can also be useful in understanding almost all of the variables that hinder corporate performance. They include payroll trends, invoicing and collections, pricing impacts, inventory and sell-through, customer contract and total cost-to-serve, procurement and spending, R&D ROI, and more.
If it’s so useful, why hasn’t every now-gen CFO embraced BI? Again, the answers tend to come in threes:
CFOs prefer money coming in to money going out. BI seems to be just another in a long line of costly IT investments. Yes, it costs money, but BI may not be as costly as a CFO thinks, or as it once was given the declining nature of the hard costs of implementation. Of course, there’s also the return on BI investment.
For the now-gen CFO that hasn’t yet embraced, or at least doesn’t fully understand, data science, BI is yet another complicated tech acronym in an arsenal of them (ERP, CRM, etc.). What many CFOs don’t understand is that BI helps uncomplicate the data all those other systems churn out.
Tech literate, investment-friendly CFOs are often still hesitant to deploy BI given expected issues in the form of failed or lengthy implementations. There is a valid cause for concern, or, at least, pause. For BI deployments to succeed, there must be a senior executive who advocates and evangelizes a data-driven decision-making mentality. This is the dividing line between a wasted expense and a successful investment.
Srin Subra, managing director, and Kristen Contreras, vice president, are with Accordion, the private equity financial consulting and technology firm focused on the 0ffice of the CFO.
Photo: Getty Images